Fiber39 S Fast Track

Can U.S. fiber and fabric manufacturers look beyond their borders to South America for growth opportunities

Fiber's Fast Track
Can U.S. fiber and fabric manufacturers look beyond their borders to South America for growth
opportunities Current political activity holds both great threat and great promise for
U.S. textiles, referring, of course, to the recently passed Bush administration request to Congress
for Trade Promotion Authority (fast track or TPA) to negotiate NAFTA-like positions in the
countries of South America, effectively creating a Western Hemisphere trading bloc. A recent
Textile World article suggested the fiber and fabric industries transform into service
industries, replacing the current product focus with emphasis on exporting/licensing/associations
in available labor (See Industry Activity,
TW, March 2002). This article will expand that proposition and refer specifically to
trade-generated growth opportunities in South America for fiber and fabric manufacturers.

It is important to state at the outset that this is not a paean to the virtues of free trade
with Latin America. That prospect suffers the same ills as free trade with any other free economy.
It is, however, a plea to the fiber and textile industries to view their businesses differently,
and expend political and business capital in pursuit of a new way to grow.In a recent presentation
to the National Textile Center, Dr. Thomas Malone, president and COO, MillikenandCompany, stated,
We have failed to effectively communicate our importance, our vulnerability and what we have to do
to survive None of us can do it alone. Further, Malone quoted Fernando Silva of Kurt Salmon
Associates as saying, If we as a collective industry dont tell our story, we are going out of
business. Isnt it time to tell our story This begs the question, what story What's The StoryIt
appears that no matter how hard the industry lobbies and how right its cause may be, change has
been achieved only at the margins. To argue about Southeast Asian nations devaluing currencies and
heaping import pressure on an almost obliterated apparel-manufacturing industry is to argue matters
over which the industry has little or no control. Quite obviously, textiles and apparel are the
trading currency in the argument of world trade and employment. Extremely low wages in developing
nations are not condoned, but one cannot change the facts of their being. Textiles and apparel are
labor-sensitive; the United States is a capital-intensive knowledge economy, and it seems almost
quixotic to attempt to stem the floodwaters of increased world low-labor-cost competition.
Traditional textiles are not alone. Recently, there have been large increases in the amount of
nonwoven roll goods entering this country. It is logical to project that the offshore roll-goods
manufacturer will evolve into a finished-article manufacturer and retain the value added in his
native country. It happened in Korea in fibers and fabrics, and in India with software development.
It is only a matter of time before another U.S. industry succumbs to the siren call of cheap
foreign labor. This is not the story for the U.S. fiber industry. It is, or should be, a story of
the latest technologies; sensitivity to employees; the ability to measure and satisfy markets;
access to reasonable, stable capital; and business objectives focused on growth.Textiles and
apparel must change the nature of the debate. In the short term, it is important to rebel against
easing the quotas and source-nation requirements granted to Andean, Caribbean and Sub-Saharan
nations. Rather than continue to fight the details of the fast track legislation, however, would it
not be better to accept it for what it is, a bad deal, and address issues leading potentially to
industry leadership in a different area of the worldHistory suggests that Congress is unlikely to
change this type of trade legislation. If we cant beat em, can we try to join em and shape the
debate on our terms, rather than frequently appearing reactive and negative BackgroundThe
Senate, by a 64-to-34 vote, as reported by William L. Watts on CBS
Market Watch, July 27, 2002, approved a compromise trade bill that includes expanded White
House authority to negotiate international trade deals, following closely on the heels of the House
of Representatives, which passed the measure by a mostly party-line vote of 215 to 212. The for
vote included 190 Republicans and 25 Democrats. According to sources, in addition to providing the
president with the authority to negotiate international trade agreements that Congress can vote up
or down but not amend, TPA expands trade benefits for the Andean Community of nations: Bolivia;
Colombia; Ecuador; and Peru. It also provides certain trade benefits for Caribbean and Sub-Saharan
nations. Watts reported the bill includes expanded trade adjustment assistance provisions for
workers displaced [by] imports or, in some cases, decisions by their employers to move factories
overseas. The House vote followed a compromise by House and Senate negotiators on differences
between the December 2001 House bill and a bill that passed the Senate in March 2002. Setting
The Stage In South AmericaThe economies of South America are the obvious targets of the current
drive to arm the administration with TPA. Given the evolution of industrial nations supplying
capital-sensitive goods to labor-intensive nations, balanced by developing nations supplying
labor-intensive goods to the industrialized nations, the United States definitely needs to improve
trade relations with its nearest neighbors. It appears that other areas of the world, particularly
the European Union (EU) and the nations of Southeast Asia, are regionalizing their trade voices in
anticipation of full implementation of World Trade Organization (WTO) policies in 2005. The North
American Free Trade Agreement (NAFTA) has created a small model of the results achievable with a
regional trade approach. Opening new dialogues with South America seems to be a logical next step
to creating a major trading force in the West, which continues to be the largest market for all the
merchandise apparel and textiles included that the world wants to export.According to the Fiber
Economics Bureau (FEB), the textile industries of the thirteen nations in South America consumed
approximately 5 billion pounds of fibers in 2001. Consumption between 1991 and 2001 grew an average
2.1 percent annually, while the continents population grew from 304 million in 1993 to 345 million,
a 1.6-percent per-annum gain. Per-capita fiber consumption for the entire continent was measured at
15.2 pounds in 1999, rising to 15.5 pounds in 2001. Unfortunately for fibers and textiles,
consumption patterns are quite uneven and do not conveniently conform to trading area geography.
For example, the Andean Community beneficiary of the special provisions of the latest TPA
legislation represents more than 32 percent of the South American population. However, only one
Andean nation, Peru with 6.3 percent of South Americas total fiber usage appears on the radar
screen of users/processors of fibers, in fourth place. Current Washington policy focuses on the
Andean Community. It appears growth prospects might be better in other countries of the region,
such as Brazil, Argentina and Chile Mercosur (also known as the Common Market of the South) nations
with particular emphasis on Brazil, which is one of the more stable economies and currently
consumes approximately 65 percent of the fiber used in the area. Table 1 shows year 2001 fiber
consumption details for several nations of South America.

The data suggest that North American manufacturers should consider associating with
producers in Mercosur countries, exchange technologies, use the relatively lower-cost labor of
South America to reduce underlying costs and, in the short term, return finished garments and
made-up items to the North. Longer term, however, the strategy changes to one of satisfying South
American local demand. More important than the 2001 statistics are the 534 million South American
residents projected for the year 2050, according to the 2001 World Population Data Sheet published
by the Population Reference Bureau, Washington. South Americas rate of growth remains low, at
slightly more than 1 percent annually, but the absolute numbers are staggering, approaching the
population of North America, including Mexico, which in 2050 will house 600 million people.
Individual country rates vary among prognosticators, but the total is agreed on by most. Imagine
the opportunities if U.S. and South American fiber and fabric producers could enjoy a regional
market growth of population and per-capita fiber use. Increasing South American fiber usage to 20
pounds per person could mean a virtual doubling of fiber and fabric consumption by the year 2050.
Production capacity is not available to process this quantity, and South American economies have
not encouraged foreign investment. Is there an opportunity to use the broader provisions of TPA
including the inherent technological and capital development advantages of our U.S. heritage in
South America to grow the local economies and open new doors for fiber and fabric
manufacturers A ProposalAccording to the FEB, apparent per-capita U.S. fiber consumption has
exceeded 80 pounds per person for the past several years. While a substantial portion of this
consumption is imported garments, approximately 60 to 65 percent comes from domestic mill
consumption. The import situation is not matched in South America, so mill fiber consumption is a
good measure of textile consumption. South American citizens consume relatively small quantities of
fiber, a logical extension of the slow development of a spending, consuming middle class. In the
short term, endemic government instabilities are not likely to change this situation, and recent
history suggests that even a new government will not change the underlying economy. Forces for
change must be external, such as trade, which in both theoretical and pragmatic economic terms is a
rising tide that lifts all boats. If textiles and apparel, which need access to relatively
unskilled labor, cannot see a way to invest in and develop South America as a textile market, who
can As noted in a recent
Wall Street Journal editorial, [t]he U.S. has no choice but to lead the world on trade so
it might be better politics to make the case for free trade. Other countries could have the choice
of impoverishing their own citizens with protectionism, but the U.S. example would be powerful.
Population increases coupled with increased standards of living yield a substantial opportunity for
increased fiber and fabric consumption. Active support of the Congressional move to TPA offers the
textile industry a strategic platform from which to enter the 21st century. The United States has
the technology, the end market and the capital formation infrastructure. Does it have the will to
actively expand beyond its own national borders